Entegra Financial Corp. Announces Fourth Quarter 2017 Results

January 18, 2018 16:30 ET | Source:Entegra Financial Corp.

FRANKLIN, N.C., Jan. 18, 2018 (GLOBE NEWSWIRE) -- Entegra Financial Corp. (the “Company”) (NASDAQ:ENFC), the holding company for Entegra Bank (the “Bank”), today announced earnings and related data for the three months and year ended December 31, 2017.

Highlights

The following tables highlight the most important trends that the Company believes are relevant to understanding the performance of the Company. As further detailed in Appendix A, core results (a non-GAAP measure) reflect adjustments for material items including investment gains and losses, investment impairment, merger-related expenses, and changes in the value of net deferred tax assets due to the passing of the Tax Cuts and Jobs Act of 2017.

For the Three Months Ended December 31,

(Dollars in thousands, except per share data)

2017

2016

Change (%)

GAAP

Core

GAAP

Core

GAAP

Core

Net income (loss)

$

(3,294

)

$

3,700

$

2,352

$

2,470

-240.1

%

49.8

%

Net interest income

$

12,682

N/A

$

9,219

N/A

37.6

%

N/A

Net interest margin

3.61

%

N/A

3.25

%

N/A

11.1

%

N/A

Return on average assets

-0.83

%

0.94

%

0.75

%

0.79

%

-210.7

%

19.0

%

Return on average equity

-8.59

%

11.37

%

6.91

%

7.43

%

-224.3

%

53.0

%

Efficiency ratio

81.58

%

60.79

%

70.34

%

68.38

%

16.0

%

-11.1

%

Diluted earnings (loss) per share

$

(0.48

)

$

0.54

$

0.36

$

0.38

-233.3

%

42.1

%

For the Year Ended December 31,

(Dollars in thousands, except per share data)

2017

2016

Change (%)

GAAP

Core

GAAP

Core

GAAP

Core

Net income

$

2,579

$

10,647

$

6,376

$

7,091

-59.6

%

50.1

%

Net interest income

$

42,845

N/A

$

34,488

N/A

24.2

%

N/A

Net interest margin

3.36

%

N/A

3.28

%

N/A

2.4

%

N/A

Return on average assets

0.18

%

0.75

%

0.55

%

0.61

%

-67.3

%

23.0

%

Return on average equity

1.82

%

8.18

%

4.71

%

5.34

%

-61.4

%

53.2

%

Efficiency ratio

75.40

%

66.54

%

76.04

%

72.65

%

-0.8

%

-8.4

%

Diluted earnings per share

$

0.39

$

1.60

$

0.98

$

1.08

-60.2

%

48.1

%

As of December 31,

As of December 31,

2017

2016

(Dollars in thousands, except per share data)

Asset Quality:

Non-performing loans

$

4,778

$

6,041

Real estate owned

$

2,568

$

4,226

Non-performing assets

$

7,346

$

10,267

Non-performing loans to total loans

0.48

%

0.81

%

Non-performing assets to total assets

0.47

%

0.79

%

Net charge-offs (12 months ended)

$

315

$

430

Allowance for loan losses to non-performing loans

227.86

%

154.03

%

Allowance for loan losses to total loans

1.08

%

1.25

%

Other Data:

Book value per share

$

22.00

$

20.57

Tangible book value per share

$

18.72

$

20.10

Closing market price per share

$

29.25

$

20.60

Closing price-to-tangible book value ratio

156.25

%

102.49

%

Equity to assets ratio

9.59

%

10.29

%

Tangible common equity to tangible assets ratio

8.29

%

10.08

%

Management Commentary

Roger D. Plemens, President and CEO of the Company, reported, “The acquisitions we have completed over the last several years continue to reap benefits for our shareholders, achieving significant improvements in profitability and efficiency. We have been particularly focused on reaching a return on tangible equity of at least 8% in 2017, a benchmark which we surpassed in the fourth quarter on a core basis. As we look forward to the remainder of 2018 and beyond, we will continue to focus on organic and acquired growth opportunities allowing a return on tangible equity to 10% and greater, while further improving our efficiency ratio. With a tangible common equity to tangible assets ratio of 8.29% at December 31, 2017, we will also continue to consider opportunities to supplement our existing capital base.”

Net Interest Income

Net interest income increased $3.5 million, or 37.6%, to $12.7 million for the three months ended December 31, 2017 compared to $9.2 million for the same period in 2016. Net interest income increased $8.4 million, or 24.2%, to $42.8 million for the year ended December 31, 2017 compared to $34.5 million for the same period in 2016. The increase in net interest income was primarily due to higher volumes in the loan and investment portfolios as well as an increase in the yields earned on cash and investments. Net interest margin for the three months and year ended December 31, 2017 improved to 3.61% and 3.36%, respectively, compared to 3.25% and 3.28% for the same periods in 2016. The net interest margin for the three months ended December 31, 2017 includes approximately 15 basis points of loan fair value accretion income that is not expected to re-occur in the first quarter of 2018.

Provision for Loan Losses

The provision for loan losses was $0.7 million and $1.9 million for the quarter and year ended December 31, 2017, compared to $0.2 million and $0.3 million for the same periods in 2016. The increased provision for loan losses in 2017 was mainly attributable to loan growth. The Company continues to experience modest levels of net charge-offs and non-performing loans.

Noninterest Income

Noninterest income decreased $0.9 million, or 48.4%, to $0.9 million for the three months ended December 31, 2017 compared to $1.8 million for the same period in 2016 primarily as the result of a decline in the gains on sale of investment securities. The Company sold approximately $45.0 million of tax exempt municipal securities in December 2017, realizing a loss of $1.1 million, in response to the Tax Cuts and Jobs Act of 2017. Increases in mortgage banking, trading securities gains, service charges on deposit accounts, interchange fees, and bank-owned life insurance (BOLI) were partially offset by declines in servicing income and gains on sale of SBA loans.

Noninterest income decreased $1.9 million, or 24.1%, to $6.0 million for the year ended December 31, 2017 compared to $7.8 million for the same period in 2016. The decrease was primarily related to a decline in the gains on sale of investment securities discussed above as well as other than temporary impairment of $0.8 million realized on two investment securities. Increases in mortgage banking, trading securities gains, service charges on deposit accounts, interchange fees, and BOLI were partially offset by declines in servicing income and gains on sale of SBA loans.

Noninterest Expense

Noninterest expense increased $3.3 million, or 43.2%, to $11.1 million for the three months ended December 31, 2017 compared to $7.8 million for the same period in 2016. Noninterest expense increased $4.6 million, or 14.3%, to $36.8 million for the year ended December 31, 2017 compared to $32.2 million for the same period in 2016. The increases were primarily related to increased compensation and employee benefits and net occupancy expenses as the 2017 periods included the full impact of the Oldtown Bank acquisition, the partial impact of the branches acquired from Stearns Bank, and the Chattahoochee Bank of Georgia (Chattahoochee) acquisition. The 2017 periods also included increased merger-related expenses resulting from the Stearns Bank and Chattahoochee transactions.

Income Taxes

Income tax expense for the three months and year ended December 31, 2017 was $5.1 million and $7.5 million, respectively, compared to $0.7 million and $3.5 million for the comparable periods in the prior year. Income tax expense for the 2017 periods was impacted by the recognition of $4.9 million of expense related to the revaluation of deferred tax assets and liabilities at the newly enacted Federal tax rate of 21%. The one-time tax, non-cash, expense related to the revaluation was partially offset during the three and twelve months ended December 31, 2017 by increased tax-exempt income related to municipal bond investments and BOLI income.

Balance Sheet

Total assets increased $284.1 million, or 22.0%, to $1.58 billion at December 31, 2017 from $1.29 billion at December 31, 2016 as the Company continued to leverage its capital with organic and acquired growth.

Loans receivable increased $260.8 million, or 35.0%, to $1.0 billion at December 31, 2017 from $744.4 million at December 31, 2016. Excluding $159.0 million of loans acquired from Chattahoochee, organic loan growth was approximately $101.8 million, or 13.7%, during 2017. Loan growth continues to be primarily concentrated in commercial real estate and commercial and industrial loans.

Core deposits increased $224.6 million, or 41.5%, to $765.4 million at December 31, 2017 from $540.8 million at December 31, 2016, including $79.6 million of core deposits assumed in the Stearns Bank branch acquisition and $105.2 million of core deposits assumed in the Chattahoochee acquisition. Certificates of deposits increased $107.5 million, or 37.2%, to $396.7 million at December 31, 2017 from $289.2 million at December 31, 2016, primarily as the result of certificates of deposit assumed from Stearns Bank and Chattahoochee. Core deposits increased slightly to 66% of the Company’s deposit portfolio at December 31, 2017 from 65% at December 31, 2016.

Total equity increased $18.2 million, or 13.7%, to $151.3 million at December 31, 2017 compared to $133.1 million at December 31, 2016. This increase was primarily attributable to the issuance of approximately 396,000 shares valued at $9.9 million related to the Chattahoochee acquisition, $2.6 million of net income, $0.9 million of stock-based compensation expense, and a $5.4 million after tax improvement in the market value of investment securities, partially offset by $0.5 million of share repurchases. Tangible book value per share, a non-GAAP measure, decreased $1.38 from $20.10 at December 31, 2016 to $18.72 at December 31, 2017 as a result of dilution from the Stearns Bank branch and Chattahoochee acquisitions, partially offset by operating results for the period.

Asset Quality

Non-performing assets decreased $2.9 million to $7.3 million at December 31, 2017 from $10.3 million at December 31, 2016 primarily as a result of the liquidation of several large real estate owned balances during the period and the resolution of non-performing loans. Net loan charge-offs continue to remain modest totaling $0.3 million for the year ended December 31, 2017.

Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables in Appendix A, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. This press release and the accompanying tables discuss financial measures, such as core noninterest expense, core net income, core diluted earnings per share, core return on average assets, core return on tangible average equity, core efficiency ratio, tangible book value, tangible assets and tangible book value per share, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

About Entegra Financial Corp. and Entegra Bank

Entegra Financial Corp. is the holding company of Entegra Bank. The Company’s shares trade on the NASDAQ Global Market under the symbol “ENFC”.

Entegra Bank operates a total of 18 branches located throughout the Western North Carolina counties of Cherokee, Haywood, Henderson, Jackson, Macon, Polk and Transylvania, the Upstate South Carolina counties of Anderson, Greenville, and Spartanburg and the Northern Georgia counties of Pickens and Hall. The Bank also operates loan production offices in Asheville, NC, Clemson, SC, and Duluth, GA. For further information, visit the Bank’s website www.entegrabank.com.

Disclosures About Forward-Looking Statements

The discussions included in this document and its exhibits may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. For the purposes of these discussions, any statements that are not statements of historical fact may be deemed to be “forward-looking statements.” Such statements are often characterized by the use of qualifying words such as “expects,” “anticipates,” “believes,” “estimates,” “plans,” “projects,” or other statements concerning opinions or judgments of the Company and its management about future events. The accuracy of such forward looking statements could be affected by factors including, but not limited to: the Company’s ability to implement aspects of its growth strategy; the financial success or changing conditions or strategies of the Company’s customers or vendors; fluctuations in interest rates; actions of government regulators; the availability of capital and personnel; and general economic conditions. These forward looking statements express management’s current expectations, plans or forecasts of future events, results and condition, including financial and other estimates. Additional factors that could cause actual results to differ materially from those anticipated by forward looking statements are discussed in the Company’s filings with the Securities and Exchange Commission, including without limitation its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The Company undertakes no obligation to revise or update these statements following the date of this press release.

ENTEGRA FINANCIAL CORP. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(Amounts in thousands, except per share data)

Three Months Ended December 31,

2017

2016

Interest income

$

14,908

$

10,826

Interest expense

2,226

1,607

Net interest income

12,682

9,219

Provision for loan losses

737

174

Net interest income after provision for loan losses

11,945

9,045

Servicing income, net

89

224

Mortgage banking

347

157

Gain on sale of SBA loans

110

186

Gain (loss) on sale of investments

(1,121

)

111

Trading securities gains

241

57

Other than temporary impairment on available-for-sale securities

(57

)

-

Service charges on deposit accounts

433

386

Interchange fees

490

398

Bank owned life insurance

200

178

Other

199

109

Total noninterest income

931

1,806

Compensation and employee benefits

5,309

4,426

Net occupancy

1,238

954

Federal Home Loan Bank prepayment penalties

-

118

Federal deposit insurance

134

94

Professional and advisory

308

246

Data processing

469

397

Marketing and advertising

226

259

Net cost of (income from ) operation of real estate owned

119

67

Merger-related expenses

2,114

174

Other

1,189

1,020

Total noninterest expense

11,106

7,755

Income before taxes

1,770

3,096

Income tax expense

5,064

744

Net income (loss)

$

(3,294

)

$

2,352

Earnings (loss) per common share:

Basic

$

(0.48

)

$

0.36

Diluted

$

(0.48

)

$

0.36

Weighted average common shares outstanding:

Basic

6,863

6,458

Diluted

6,863

6,468

ENTEGRA FINANCIAL CORP. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(Amounts in thousands, except per share data)

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